Over the past year, an increasing number of Blockchain projects have utilized the Ethereum protocol to distribute unique tokens in a decentralized and transparent manner. The tokens released by independent Blockchain projects and companies are compatible with the Ethereum network and its native token.

The vast majority of Blockchain companies that have initiated ICOs have found major success, raising tens of millions of dollars at a massive valuation. In fact, on May 3, Cointelegraph reported that Blockchain companies have raised 2.4x more capital from ICOs than traditional early-stage and venture capital funding.

Easy way to raise money

ICOs have offered Blockchain startups and projects an easy method of raising capital without the existence of intermediaries and mediators. Some projects such as Gnosis have raised millions of dollars at a staggering $300 mln valuation, which would likely not be possible with traditional early-stage and venture capital firms without an active user base and a solid revenue stream.

More importantly, ICOs have allowed independent investors to participate in early-stage funding rounds of projects. Anyone can participate in an ICO by purchasing Ethereum to purchase unique tokens offered in ICO campaigns. Such decentralization has led to a larger market of potential investors and stakeholders.

However, in the past few weeks, experts have begun to discuss the legality of ICOs and how they may run into conflict with the SEC and other government agencies in the future.

Investors’ concerns about ICOs

Most recently, prominent Bitcoin trader WhalePanda wrote in his Consensus NY event recap blog post that the legality of ICOs was one of the major discussion points at the event.

WhalePanda criticized many of the ICOs that have raised massive amounts of money, at a valuation surpassing hundreds of millions of dollars, for the lack of clear vision, user base, revenue stream and even a working product. WhalePanda specifically criticized Golem and Elastic in his writing.

“Take Golem for example: $400 million+ market cap and not even a properly working product, just because it’s on Ethereum. Elastic for example is a similar project, they raised 700+ BTC in donations but they basically have a superior working product close to launch. Or just think about the Gnosis launch. ICO insanity has to end badly.”

Investors are concerned with regard to the legal ambiguity surrounding ICOs now that government agencies and central banks have started to get involved. Most recently, local Chinese news source cnLedger reported that Yao Qian, head of Digital Currency Research Institute at PBoC, mentioned that the central bank of China intends to regulate the ICO market soon.

Also, despite the existence of smart contract and ICO auditing firms, some experts have advocated for the regulation of the ICO market.